Financial literacy is a red herring. Research has demonstrated that financial literacy does not correlate to financial behavior; people with high financial literacy do not necessarily engage in positive financial behavior. And vice versa — low literacy does not ensure negative financial behavior. But if improved literacy does not improve positive financial behavior, what does? According to research, financial behavior strongly correlates to financial socialization.
If financial behavior is not determined by or even indicative of financial literacy, simply creating a new financial literacy course would a fool’s errand.
Our money behavior, habits, and beliefs are tied, inextricably, with our emotional associations regarding money. The roots of our feelings were formed first through our family and later, as we aged, by our peers, culture influences, and romantic partners. So, if we wish to positively impact financial behavior, we must work on financial socialization (or, more likely, resocialization).
This is not to say that facts are unnecessary or unimportant — just that they are only one ingredient and are nearly worthless in isolation. Facts, without context and a framework upon which to add new understanding, will quickly dry up and blow away. My work focuses on three concurrent elements: 1) deepening understanding of our own beliefs, behavior, and motivations; 2) developing and mastering systems for planning, tracking, and monitoring our finances; and 3) acquiring and internalizing unbiased and accurate financial facts.
Getting the most out of this guide
One of the big issues I have with financial gurus is that people take them too seriously. Even worse, they take them literally. A guru says, “Jump,” and people say, “How high?” A guru says, “Never borrow money” and poor suckers everywhere start saying, “Oh, well, I guess I’d rather starve all day and risk fainting from dehydration than borrow $10 from my co-worker because I forgot my lunch in this morning’s scramble for the door.”
Don’t be so gullible!
Not that I’m equating myself with a big-name financial guru but let’s get it straight right now that what I write should not be taken as gospel. Every “rule” or “step” I put forth in this guide/workbook has a purpose — but it’s just as important to know when the rules can be bent (or maybe even outright broken). If it helps, let’s substitute the word “rules” with “guidelines.”
Let’s get something else straight from the get-go: I’m not paid by the word. If the step or guideline were not important, I wouldn’t waste your time and my energy. Don’t go breaking or ignoring or even bending guidelines or skipping steps just because you’re in a hurry or because you think you’re so important or cool or smart that the guideline or step doesn’t apply to you.
As a good friend and valued client once said, “you don’t know what you don’t know ’til you know it.” The best way to get the most out of this guide is to implement each “best practice” suggestion and follow every guideline — the first time through. Then later, as you become more practiced, you can decide which steps can be combined and which guidelines really don’t apply to your situation.
Note on emotions
Money is simple. Our relationship with money is often very complex.
Whenever I work with clients, either in groups or individually, I like to begin by creating a Shame-Free Zone. [In groups we also begin by agreeing that our sessions will be conducted under a Cone of Silence.]
If (or, more likely, when) you feel yourself getting stressed or you catch yourself using shaming language, stop. Get up. Take a break. Or challenge that voice in your head shouting negative, discouraging, blaming things at you. You can do this. It may take time. It may take effort. But it can be done —yes, by you.
So, let’s get started!
next >> Chapter 1: The Difference Between Debit and Credit Cards
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